The Center's work on 'Accomplishments' Issues

Social Security Is Especially Important to Minorities

November 13, 2013 at 3:20 pm

A recent analysis by economist Eugene Steuerle and colleagues concludes that African Americans and Hispanics as a group each pay more in Social Security taxes in a given year than they receive in benefits.  If true, this stems more from the age composition of the population (as explained below) than from the structure of Social Security.  The fact remains that Social Security is particularly important for minorities.

Social Security’s benefit formula is weighted in favor of low-wage workers, who are disproportionately black and Hispanic; they receive higher monthly benefits as a percentage of their earnings than do higher-wage workers.  Low earners are also more likely to become eligible for Social Security disability benefits and for the survivor benefits paid to the young families of breadwinners who die.

Although higher earners tend to live longer and collect retirement benefits for a longer time, this only partly offsets the first two factors.  The Congressional Budget Office has found that the ratio of  lifetime benefits to payroll tax contributions is almost three times as high for people in the bottom fifth of the earnings distribution as for those in the top fifth.  Using a similar approach, Urban Institute researchers have estimated that blacks and Hispanics receive more benefits over their lifetimes, relative to their contributions, than do whites.

African American and Hispanic recipients also rely more heavily on Social Security as a source of income.  Among beneficiaries aged 65 and older, Social Security represents 90 percent or more of income for 35 percent of elderly white beneficiaries, 42 percent of Asian Americans, 49 percent of blacks, and 55 percent of Hispanics.  (See graph.)

Since people pay Social Security taxes in their working years and receive benefits when older, it’s more appropriate to gauge any group’s returns over a lifetime rather than in a single year. Our country is becoming increasingly diverse even as the population ages.  African Americans and Hispanics represent a much larger portion of the working-age population than of the retiree population.  As a result, their share of payroll tax contributions in a single year may exceed their share of benefits.  But this doesn’t change the fact that African Americans and Hispanics will typically receive above-average returns on their contributions over their lifetimes.

Social Security Administration Confirms 1.5 Percent COLA

October 30, 2013 at 12:15 pm

The Social Security Administration (SSA) announced today that the 2014 cost-of-living adjustment (COLA) will be 1.5 percent, smack in the middle of the range that we estimated yesterday.

The taxable maximum — that is, the maximum earnings on which workers and their employers will pay Social Security taxes — will be $117,000 in 2014.  The taxable maximum is indexed to growth in average wages, which is computed based on over 150 million W-2 reports.  Next year’s $117,000 ceiling is slightly higher than we expected and indicates that growth in average wages in 2012 was a bit greater than the SSA actuaries and the Congressional Budget Office estimated earlier this year.

Many features of Social Security are automatically linked to prices or wages and will rise in 2014.  For a complete update, see the table here.

What to Expect From Wednesday’s 2014 COLA Announcement

October 29, 2013 at 3:12 pm

The Labor Department will announce the Consumer Price Index (CPI) for September 2013 tomorrow — the last missing piece that’ll determine the January 2014 cost-of-living adjustment (COLA) in Social Security.  The department would normally have announced the CPI on October 16, but — like many other economic indicators — it fell victim to the government shutdown.

The COLA for Social Security and several other programs — including Supplemental Security Income, federal civil-service and military retirement, and payments to disabled veterans — is pegged to the CPI in the July-September quarter.  Based on what we know, we expect the upcoming COLA to be between 1.4 percent and 1.6 percent.  (See table.)  That’d be just a hair smaller than last January’s COLA.

Social Security COLAs have a long history:  Congress voted overwhelmingly in 1972 to pay them beginning in 1975, pegged to the CPI for Urban Wage and Clerical Workers (the CPI-W), which tracks inflation for an average consumer.  Automatic COLAs were paid in every year from 1975 through 2009.  In 2010 and 2011, there were no COLAs because prices had dropped from their peak in summer 2008.  (Fortunately for recipients, their benefits didn’t go down even when prices fell.)  Once prices surpassed their summer 2008 level, COLAs resumed.

For an average beneficiary, we expect the COLA to mean an extra $18 per month.  In added good news, the government has announced that premiums for Medicare Part B — which covers doctor and outpatient services — will remain flat in 2014.  Because most elderly or disabled Social Security beneficiaries enroll in Medicare Part B and have the premium deducted from their monthly check, that means the entire COLA will go toward boosting their monthly check.

In 2013, workers and their employers pay Social Security tax on earnings up to $113,700.  That taxable maximum will also rise in 2014.  Because of rising inequality, that ceiling now encompasses about 83 percent of covered earnings, well below the 90-percent target that policymakers envisioned in the 1977 Social Security amendments.

Social Security benefits are modest, both in dollar terms (the average retired worker gets about $1,270 a month, and only 9 percent receive more than $2,000 a month) and by international standards.  They’re the foundation of retirement income — and they also provide essential protection for workers who become disabled and to families of workers who die young.

For most Americans, Social Security will be the only source of retirement income that’s guaranteed to last as long as they live and to keep pace with inflation.  It’s vital for policymakers to keep those protections as they work to ensure this popular program’s long-run solvency.

Social Security Keeps 22 Million Americans Out of Poverty

October 25, 2013 at 2:01 pm

Social Security lifted 22 million people out of poverty in 2012, according to our updated analysis (with state-by-state data) of Census data.  This includes not just 15 million elderly Americans but also many younger people, including 1 million children who either received their own benefits as dependents of retired, disabled, or deceased workers or lived with relatives who received Social Security.  (See table below.)

Without Social Security benefits, 44.4 percent of elderly Americans would have incomes below the official poverty line, all else being equal.  With Social Security, only 9.1 percent do.  (See graph.)

Given the program’s powerful anti-poverty impact, cuts in Social Security benefits could significantly raise poverty — particularly among the elderly and the disabled — depending on their design.

Social Security benefits are already modest, both in dollar terms (the average retired worker receives less than $1,300 a month) and by international standards.

Social Security accounts for two-thirds of income for its elderly beneficiaries, on average.  And more than a third of beneficiaries — generally the oldest and poorest — rely on Social Security for at least 90 percent of their income.

While policymakers should work to close Social Security’s long-term funding gap, they should remember this program’s vital importance for Americans of all ages.

U.S. Seniors Are a Hard-Working Bunch

July 17, 2013 at 9:20 am

Financial pressures are leading many European Union (EU) countries to encourage older workers to remain in the labor force, the Social Security Administration (SSA) reports.  By way of comparison, U.S. seniors are more likely to be in the workforce than their peers in almost every other developed country.

Nearly 30 percent of Americans ages 65 through 69 were employed in 2012.  That’s about three times the European average, according to the Organisation for Economic Co-operation and Development (see chart).

Among large, highly developed countries worldwide, only a few had more than 20 percent of their 65- to 69-year-olds on the job, and only Japan and Korea topped the U.S. figure.

Elsewhere we’ve noted that our Social Security system pays pretty modest benefits compared with other advanced nations.  And Social Security already has a number of money-saving provisions that European nations are moving to emulate, such as an early-retirement age  that’s higher than many other countries’ (62), lower benefits for people who take early retirement, a high and rising age for full benefits (66, soon to be 67), and a bonus for people who delay retirement.

The moral?  Our seniors already work harder and get lower benefits than their counterparts in most other rich countries.  So imposing big benefit cuts on ordinary seniors would be the wrong way to restore Social Security solvency.